Europe’s high yield new issuance “lacks fundamentals”

Investors chasing returns risk defaults

Three shrubs in a row each larger than the other
While the alarm bells begin to ring, European institutional investors in allocate more to fixed income strategies

“It is very clear that the models used to determine the ability of a high yield company to repay its debts are severely broken,” wrote Richard Travia, director of research at Tradex Global Advisors, in a note in November 2013. 

“As in the late stages of the housing boom, underwriting standards in the corporate credit markets have loosened as the offer continues to get lifted at higher prices for CCC credits. Today more than 50% of the new issuance for senior bank debt is covenant-lite

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